Partisan politics and economic intervention: evidence from an aggregating approach

Abstract

While government intervention in the economy has decreased in recent decades, the literature disagrees on the causes of this development. This article provides a comprehensive picture by aggregating five economic policy instruments (regulation, state ownership, business taxation, subsidisation, government spending) into one index for 20 OECD countries between 1981 and 2018. It studies partisan politics and the conditioning effects of domestic and international economic pressures (unemployment, globalisation). It is argued that the moderating effect varies for short- and long-term pressures for domestic, but not for international factors. Regression analyses highlight the role of political parties with the left increasing intervention. Moreover, partisan differences are particularly relevant when unemployment is high, but disappear as unemployment increases. Regarding globalisation, partisan differences decrease with the level of globalisation, while short-term changes do not condition them. This aggregating approach sheds new light on partisan politics when it comes to state intervention in the economy.

Keywords:

• Economic policy
• political parties
• unemployment
• globalisation
• liberalisation
• economic intervention

Acknowledgements

The authors would like to thank the anonymous reviewers as well as the participants of the public policy research workshop at Aarhus University, Denmark, in September 2022 and the panel ‘The State in Capitalism and Society: Intervention or Liberalization’ at the CES International Conference of Europeanists at the University of Iceland, Iceland, in June 2023 for helpful comments.

Disclosure statement

No potential conflict of interests was reported by the authors.

Notes

1 Following Zohlnhöfer et al. (2018: 536), we define government intervention in the economy ‘as a bundle of different policies that interfere with market processes or re-allocate financial resources and that are often, but by no means necessarily, meant to correct market outcomes and improve a country’s economic situation’.

2 E.g. Obinger et al. (2014), Peña-Miguel and Cuadrado-Ballesteros (2020) and Schneider and Häge (2008) for privatisation; Potrafke (2010) and Schmitt and Zohlnhöfer (2019) for product market regulation; Basinger and Hallerberg (2004), Osterloh and Debus (2012) and Plümper et al. (2009) for business taxation.

3 E.g. Fink (2011) and Schmitt (2011) for privatisation; Heinemann (2007) and Schuster et al. (2013) for product market regulation; Adam and Kammas (2007) and Swank (2016) for business taxation.

4 While Schuster et al. (2013) and Schmitt and Zohlnhöfer (2019) are the most recent articles studying more than one policy instrument, they still analyse policy instruments separately.

5 Distinguishing between long- and short-term effects is not entirely new in the related literature. E.g. Busemeyer (2009) emphasises the importance of differentiating between these dimensions when it comes to the study of globalisation effects on the welfare state. Others distinguish between long- and short-term for methodological reasons when employing error correction models for the analysis of economic or social policies (e.g. Jensen and Seeberg 2015; Swank 2016), mostly without explicitly theorizing potentially differing short- and long-term effects.

6 One might object that traditional manual workers are not the largest segment of the electorate even of the ‘old left’ anymore and that the class composition of left parties’ electorates should make a difference. Empirically, however, the class composition only plays a relevant role for subsidies but not for privatization or product market regulation (Engler and Zohlnhöfer 2019). Hence, for our aggregate analysis, the classic argument should still hold.

7 Labour market regulation is somewhere in between social and economic policy. We refrain from including employment protection legislation in our index for two reasons. First, it is generally understood as part of the regulatory welfare state (e.g. Emmenegger 2011; Simoni and Vlandas 2021; Zohlnhöfer and Voigt 2021). Second, previous research has already shown that parties use the (de-)regulation of employment protection to address unemployment (Zohlnhöfer and Voigt 2021). Therefore, refraining from the inclusion of labour market regulation in our aggregate state intervention index and focusing on core economic policy instruments puts our theoretical expectations regarding the role of economic problems to a more conservative test.

8 Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

9 For details on operationalisations, data sources and descriptive statistics, consult Tables A1 and A2 in the online appendix.

10 The results are essentially the same for debt levels as an alternative indicator for public indebtedness.

11 Admittedly, Haelg et al. (2022) find a positive effect of left parties under high levels of globalization until recently. Note, however, that these authors look at a substantially more diverse set of countries and only at one aspect of globalization, namely trade, while our globalization indicator is more encompassing. Finally, social policy could produce substantially different patterns than economic policy because the compensation logic could be much more directly relevant for the welfare state compared with economic policy.

Additional information

Funding

This work was supported by the German Research Foundation (DFG, grant number ZO 126/5-1).

Notes on contributors

Fabian Engler

Fabian Engler is postdoctoral researcher and senior lecturer at Ruprecht-Karls-University Heidelberg. His research interests include comparative political economy, political parties and MPs’ legislative behaviour. His work has been published in journals such as the British Journal of Industrial Relations, British Journal of Political Science, European Journal of Political Research and Journal of European Public Policy. [[email protected]]

Jan Jathe

Jan Jathe is research associate and lecturer at Ruprecht-Karls-University Heidelberg. His research focusses on economic policy making, political parties and policy diffusion. [[email protected]]

Reimut Zohlnhöfer

Reimut Zohlnhöfer is Professor of Political Science at Ruprecht-Karls-University Heidelberg. His research focuses on Comparative Political Economy, Policy Process Theories and politics in advanced democracies. He has published in many leading journals, including British Journal of Political Science, Comparative Political Studies, European Journal of Political Research, European Political Science Review, Party Politics and Socio Economic Review. [[email protected]]